Trade openness, financial development, and urbanization in the renewable energy-growth-environment nexus

Abstract

ABSTRACT The renewable energy-economic growth-environment nexus has been generally considered an important puzzle that needs to be addressed for the following phrases of sustainable economic growth and development globally. The existing literature confirms the potential role of trade openness, financial development, and urbanization in this nexus. However, these roles have largely been ignored in empirical studies. This study uses the second-generation macro econometrics regarding panel unit root tests, cointegration tests, long-run estimations, and Granger homogeneous non-causality tests to investigate these impacts on the important nexus. First, the findings reveal that economic growth increases CO2 emissions, whereas renewable energy usage supports economic growth and mitigates CO2 emissions. There appears to be a bidirectional causality relationship between renewable energy and economic growth, which Granger-cause CO2 emissions unidirectionally. Second, trade openness increases CO2 emissions and renewable energy usage. We also find that financial development positively contributes to economic growth, whereas urbanization has no impact on the nexus in the long run. Third, trade openness Granger causes economic growth bidirectionally, and unidirectional causality from financial development to economic growth and CO2 emissions is found. Our results confirm a bidirectional causality relationship between urbanization, economic growth, and CO2 emissions and a unidirectional causality relationship from renewable energy to urbanization. Policy implications have emerged for countries globally, including emerging markets, which are the main emitters. Increased renewable energy supply and usage in total energy and extended financial systerms will sustain economic development and limit CO2 emissions.